South Dakota jury clears ex-nonprofit CEO in contracts case

SIOUX FALLS, S.D. (AP) — A South Dakota jury late Thursday night cleared a former nonprofit executive accused of backdating contracts to try to avoid a potential audit in a case sparked after the organization's financial officer killed his family and himself in 2015.

Stacy Phelps, the former CEO of the American Indian Institute for Innovation, was found not guilty of falsifying evidence and conspiring to offer forged or fraudulent evidence. Prosecutors alleged Phelps backdated the contracts between the nonprofit Institute and an educational cooperative in an attempt to dodge an audit.

Defense attorney Dana Hanna said Native American people in South Dakota have always known Phelps, a member of the Sisseton Wahpeton Oyate, was innocent of the charges and have been behind him "all the way."

"We've always maintained his innocence, and we proved it," Hanna said. "God is great. That's all I have to say."

Phelps was the second and final person to face trial in a sprawling case known as Gear Up. The first hint of major issues came after the nonprofit's chief financial officer, Scott Westerhuis, shot his wife, his four children and then himself in 2015. Authorities have said they believe Westerhuis and his wife stole more than $1 million before their deaths.

The killings spurred a financial investigation that led to charges in 2016 against Phelps and two others who worked with Westerhuis at the Institute or Mid-Central Educational Cooperative.

Hanna said during the trial that the evidence showed Phelps didn't commit any crimes. Attorney General Marty Jackley, a prosecutor, unsuccessfully argued that the case was about a "cover-up" of the financial dealings of the nonprofit and Phelps' conduct.

Jackley said after the verdict that Westerhuis' absence complicated the case. But Jackley said he appreciates the jury's service and respects the verdict.

"At the end of the day, our job is to present as much evidence as we can to the jury and let the jury make that just result," Jackley said.

Phelps testified in his own defense, denying that he feared an audit of the nonprofit and saying that he believed the contracts were genuine. Phelps said he had never discussed dodging an audit with Westerhuis and trusted him up until the day he died.

Phelps said he backdated the documents in August 2015 because Westerhuis said he couldn't find the originals. Phelps said Mid-Central's former director, Dan Guericke, had already signed the contracts when they were emailed to him and that he viewed backdating them as a "routine act that Mid-Central asked me to do."

The Institute helped Mid-Central administer a college-readiness grant program called Gear Up, and Phelps and Westerhuis worked for both organizations. Educational cooperatives provide services to member school districts in areas such as special education.

Westerhuis also told him the contracts had to be amended to include language requiring that the Institute get permission from Mid-Central to spend money for a Gear Up summer program, Phelps testified.

Jurors deliberated for about nine hours. During closing arguments Thursday, Hanna deflected blame from Phelps, saying he trusted Westerhuis and got played by him. The Argus Leader reported that Hanna referred to Westerhuis as a "world-class con man," ''liar" and "criminal."

Prosecutors pointed out inconsistent answers Phelps gave during a law enforcement interview about the reason Westerhuis asked him to backdate the contracts, and they tried to convince jurors he had a motive for wanting to avoid an audit of the nonprofit he headed.

Phelps, 45, had pleaded not guilty to two counts of falsifying evidence and two counts of conspiring to offer forged or fraudulent evidence. He faced a maximum sentence of two years in prison and a $4,000 fine per count.

Guericke was a co-defendant with Phelps, but instead took a plea deal in September and then testified during Phelps' trial.

A jury in June cleared onetime Mid-Central assistant business manager Stephanie Hubers, who had been accused of receiving about $55,000 to keep quiet about Westerhuis and his wife's alleged stealing. Hubers was found not guilty of grand theft, grand theft by deception and alternative receiving stolen property charges.